BPO not to part taxes on global income

The uncertainty surrounding taxation of foreign companies setting up captive business process outsourcing units appears to have been resolved, at least to some extent. The Supreme Court, which delivered its eagerly awaited verdict in the Morgan Stanley case on Monday, has held that the income tax department cannot attempt to tax a part of the global income of a foreign company by attributing it to its India-based BPO.

The parent would thus not be at risk of being taxed in India as long as it is compensating its outsourcing unit on an arm’s length basis (Morgan Stanley US would send the Indian company the same payment as it would to an outside agency).